HL Deb 18 February 1982 vol 427 cc645-6

3.9 p.m.

Lord Mayhew

My Lords, I beg leave to ask the first Question which stands in my name on the Order Paper.

The Question was as follows:

To ask Her Majesty's Government what was the target profit rate on non-competitive defence contracts in 1980 and what rate is proposed for 1982 and subsequent years.

The Minister of State for Defence Procurement (Viscount Trenchard)

My Lords, the target profit rate for non-competitive defence contracts in 1980 was 20 per cent. on capital employed. The same rate currently remains in force, in line with the recommendation contained in the last report (in 1980) from the independent Review Board for Government Contracts.

Lord Mayhew

My Lords, has the noble Viscount seen the evidence of the Comptroller and Auditor General to the Public Accounts Committee which suggests that 20 per cent. is too high, and is often being exceeded? The Government have committed them-selves to the principle of comparability with the rest of British industry. Why do they not stick to that principle?

Viscount Trenchard

My Lords, I have seen the report to which the noble Lord refers and the fact that the results of the average of post-costed contracts during the period under review were 2 per cent. above the target, on average, and that that produces a result of 5 to 6 per cent. return on capital in inflation-proof terms, in real terms. The system is designed to encourage firms which are efficient to exceed the target. The firms which are post-costed are those where we believe there is a purpose in post-costing. Thus the Government on the whole are content that this last report shows an average which is healthy and which is required certainly if industry is to take over a greater degree of its own development currently performed for it.

Lord Roberthall

My Lords, is the Minister satisfied that the present rate of defence capacity will remain at full efficiency, which certainly was not the case for some years under the old arrangement?

Viscount Trenchard

My Lords, in relation to British manufacturing industries' profit levels, the defence industry is, as the noble Lord, Lord Mayhew. implied, slightly better off, but the return on capital is not commensurate with that being earned by industry in competitor countries. The Government would like to see it rise through efficiency so that more competitive levels of research and development can be commercially funded.